Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[Uccmal]

http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2

 

 

Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

 

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. Its easy to meet a target you cant keep up with anyway. 

 

Or they are just jawboning.  Does this qualify as buy on rumour, sell on news, or buy on news and sell on rumour. 

[Uccmal]

http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2

 

 

Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

 

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice.  Its easy to reduce your target when no one can keep up with it anyway.

 

Or they are just jawboning... is this buy on rumour sell on news, or the other way around? 

[sculpin]

Baytex up 15% today on OPEC news....will the rally continue?

[sculpin]

Energy comment from NG guru Robry...

 

......OIL: Thought this Wednesdays EIA report might be the letdown week (Due to pulling out the Colonial linepack in leau of shell storage),

......but not so. Globally we are probably 25-30 MMBLS undersupplied/month (seasonally adjusted) at this point and that could not be undone.

......And surprise, after the EIA came out, OPEC (widely expected to do nothing) did something and agreed to cut. OPEC prestige is on the

......line and it cannot afford to have the bull-train leave the station without it.

 

......That was the final nail in the coffin of the oil glut. It is gone and won't be back unless invited by a global economic mealtdown. So that

......little "$90 oil by mid February" scenario stays in play and I will leave it there and this will be my last comment on oil. Both natgas and oil

......look to me to be more bullish than at any time that I can remember anytime since 2000. Folks likely will make fortunes in energy over the

......next 12 months. Hopefully you will be amoung them. My last words on the subject.

 

http://www.investorvillage.com/smbd.asp?mb=4288&mn=224875&pt=msg&mid=16408284

 

[Uccmal]

http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2

 

 

Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

 

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 

 

Sold a bit more.  Small sales mostly.  At some point this could well retract for a few days, weeks, or even months.  Should we get a recession it will put a real damper on oil price increases for awhile.  Its always a balancing act.  Sell and take profits, but pay taxes, or hold and endure the inevitable punishment of being overinvested in something. 

[KinAlberta]

I'd read this a few years back and found it to be very enlightening. I think, so far, it's worked out pretty much as the author (Leonardo Maugeri) suggested.

 

 

 

Oil: The Next Revolution

THE UNPRECEDENTED UPSURGE OF OIL PRODUCTION CAPACITY AND WHAT IT MEANS FOR THE WORLD

Leonardo Maugeri

 

EXECUTIVE SUMMARY

Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.

Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production (the level of production targeted by each single project, according to its schedule, unadjusted for risk) of more than 49 million barrels per day of oil (crude oil and natural gas liquids, or NGLs) is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.

 

pg 1

 

 

 

 

"A sudden dip below $50 would not necessarily suspend the development of many projects worldwide, but would only slow their execution. The exception would be those projects that hold the highest marginal costs, such as some Canadian tar sands projects, Venezuelan extra-heavy oils, Brazilian pre-salt formations, as well as those projects that can be stopped immediately, such  as U.S. shale/tight oil ones those of OPEC producers, whose execution depends on the will of governments.

 

Such a response from oil companies and governments would soon curtail new production, leaving the world market vulnerable to sudden disruptions by geopolitical factors or major accidents once again. Furthermore, market instability would likely coincide with a rebound of oil demand, driven by lower prices. Market forces should then realign prices with the higher marginal production costs in less than two years.

 

Conversely, if an oil price collapse were to occur after 2015, a prolonged phase of overproduction could take place, because production capacity would have already accumulated and production costs would have decreased as expected. This is what happened to shale gas production in the United States between 2011 and 2012. In this case, market recovery will depend critically on the strength of the world economy as well as geopolitical factors affecting the steady flow of oil on the global market.

 

Finally, the worst scenario would involve a collapse of China, which would make any current forecast about the future of the oil market (and the world economy) useless. Being China the current engine of the world economy and of oil price consumption growth, its collapse would leave the oil price fall without a floor."

 

The opposite may also be true,..." - pgs 63, 64

 

 

 

"After 2015, however, most of the projects considered in this paper will advance significantly and contribute to a strong build-up of the world’s production capacity. This could provoke a major phenomenon of overproduction and lead to a significant, stable dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade." - pg 66

 

 

http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf

 

 

Maugeri, Leonardo. “Oil: The Next Revolution” Discussion Paper 2012-10, Belfer Center for Science and International Affairs, Harvard Kennedy School, June 2012.

 

 

 

 

 

Get Used to Cheap Oil. Why Lower Prices May Stick Around

 

By IAN TALLEY

Jan 21, 2015

 

 

 

Leonardo Maugeri, an associate professor at Harvard University’s Belfer Center for Science and International Affairs and who predicted the current collapse in prices back in 2012, estimates world oil production capacity is about 101 million barrels a day. That’s nearly 10% more than expected demand next year.

 

Mr. Maugeri says U.S. shale and tight oil production is more resilient than many expected because of lower break-even costs and higher productivity levels. Service fees are also falling at the same time, as hedging still offers a cushion to shale producers until mid-2015, he said.

 

That resilience may force Saudi Arabia to keep up its price war well into the year before the strategy wrings out some of the oversupply.

 

Elsewhere in the world, Mr. Maugeri said oil producers will likely slash exploration, but not development spending, which means new capacity will still come online.

 

 

http://blogs.wsj.com/economics/2015/01/21/get-used-to-cheap-oil-why-lower-prices-may-stick-around/

 

 

 

A book that might be an interesting read

 

What Or Who Moves Oil Prices?

Michael Lynch AUG 10, 2016

 

http://www.forbes.com/sites/michaellynch/2016/08/10/what-or-who-moves-oil-prices/#61415100607d

 

[StevieV]

http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2

 

 

Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

 

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 

 

Sold a bit more.  Small sales mostly.  At some point this could well retract for a few days, weeks, or even months.  Should we get a recession it will put a real damper on oil price increases for awhile.  Its always a balancing act.  Sell and take profits, but pay taxes, or hold and endure the inevitable punishment of being overinvested in something.

 

 

FWIW, I haven't sold any shares in my O&G companies.  I am invested because I think WTI will be $60+ and I think the companies I own will do very well at those prices.  So, I am not planning to sell until: (1) we get  60+ and I think the companies have reached their full value; (2) I am convinced that we aren't going to get 60+; or (3) Something company specific.

 

I think the conditions for 60+ are just starting to get going.  First, we had huge reductions in CAPEX, but little in the way of production changes.  Then we started to see slowing production, though it lagged the price and CAPEX cuts by a while.  Now, we are getting draws of US inventory.  The production and inventory have been relatively slow moving boats, so I expects trends to persist for a while.

 

$60 will bring some supply back online.  However, it isn't going to do anything for deepwater or long lead projects.  It isn't going to save Venezuela.  It isn't going to mean a tidal wave of oil sands or other high cost projects.  Accordingly, I think that is a realistically sustainable price.  Even US shale took huge amounts of capital and rigs to bring about the growth.  It is not that easy to bring it back on at the type of rate it came online before.

 

Right or wrong, I am looking for BTE $20 and PWE $4+ USD.  Given those lofty targets, I have no temptation to make any move now.

[TwoCitiesCapital]

http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2

 

 

Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

 

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 

 

Sold a bit more.  Small sales mostly.  At some point this could well retract for a few days, weeks, or even months.  Should we get a recession it will put a real damper on oil price increases for awhile.  Its always a balancing act.  Sell and take profits, but pay taxes, or hold and endure the inevitable punishment of being overinvested in something.

 

Right - I started my investing career with the buy/hold mentality but got burned by holding a lot of names through 2008 and further was sold on the idea of being more tactical with the understanding that we're probably still in a secular bear market that probably started in 2000ish.

 

Given that I think that markets are prone to large drops during this period, I've tried to be quicker and more tactical at taking profits, selling covered calls on large spikes, selling shares after prolonged rallies, etc. Sometimes this means missing out on further upside, but in A LOT of cases it's contributed to my returns/reduced losses in some of my largest positions (Altius, Fiat/Chrysler, Santander, etc).

 

If we were starting from a market P/E of 7-8x, I'd simply say buy great companies, reinvest 100% of dividends, and hold. No reason to try to get fancy with that. When they're trading at elevated multiples with declining earnings with low interest rates and tightening liquidity - I'm nowhere near confident enough to simply "hold" my positions and do try to get fancy to squeeze additional returns out of the same positions.

 

 

 

 

 

 

[physdude]

A pretty big draw (-7.6 mln barrels) from the API again! Let us see if the EIA confirms. If these draws continue,  I can easily see WTI hitting 60 by the end of the year.

[sculpin]

A pretty big draw (-7.6 mln barrels) from the API again! Let us see if the EIA confirms. If these draws continue,  I can easily see WTI hitting 60 by the end of the year.

 

http://www.investorvillage.com/groups.asp?mb=19168&mn=52903&pt=msg&mid=16427219

 

It's hard to find any weakness in this EIA report

Normally in a shoulder season you can expect some crude builds with little distillate builds offset by some draws in gasoline. Not in this report.

Crude stocks fell again - by 3.0mm bls

Gasoline stocks were almost flat - rising by a mere 0.2mm bls

Distillate stocks fell by a large 2.4mm bls

Total in all 3 products - 5.2mm bls draws, or 0.74mm bpd.

 

Imports fell again - by 125K bpd to 7.7mm bpd and as expected running below 8.0-8.3mm bpd during summer. This is the very bullish figure suggesting that OPEC and other producers are at peak production and cannot add more.

 

Refinery utilization at 88.3%- finally showed reduced demand due to the maintenance in full force. This rate is close to a bottom demand. It may drop to 86% similar to previous years for a single week, but may remain at 88% as the season has started earlier this year. Regardless a couple of more weeks at 86-88% should follow by the jump back to 90% in 3 weeks.

 

Crude builds was certainly impacted by adjustments that dropped by relatively large 370K bpd, from +240bpd to -130K bpd. However the important figure for future expectations is the absolute adjustment that was 130K bpd only - very small.

 

Crude stocks broke down the psychological level of 500mm bls for the 1st time this year, down by 40mm bls from the peak, and on its way to achieve the last year level of 460mm later this year, and 5-year average of 400mm bps some time next year.

 

Gasoline stocks are at 227mm bls that is just 7mm bls above 5-year average, or 3.5%. Accounting for 3-4% demand growth in US the gas stocks are basically at average levels.

 

Distillate stocks are at 160.7mm bls, 11.5mm bls or 7.8% above last year. However higher inventories are needed for expected colder winter this year.

 

There is no glut in gas and distillate stocks. Crude stocks are falling rapidly and are on its way to remove 40-100mm bls excesses in the next 3-12 months.

US production: continued falling by 30K bpd including 38K in the lower 48.

 

Demand in all 3 categories continued to be very strong. Unlike last year when demand was weaker after the Labor Day weekend, this year demand did not show any weakness so far:

Gas: +511K bpd

Distillate: +103K bpd

Jet fuel: +202K bpd

 

Bottom line:

The report is very very bullish. It is hard to find any bearish position.

WTI should break out $50 in a very near future and keep going to $60 no matter what some analysts say.

 

[Cardboard]

"US production: continued falling by 30K bpd including 38K in the lower 48."

 

This to me was the nail in the coffin of all the BS that media outlets having been pushing on people for 2 years now or that U.S. shale production had defied all laws: cost down from marginal to best in class, exponentially improving rig productivity, 30 to 40% decline rate that did not matter, etc.

 

Despite rigs having been added in the field at small increments over the past 2 or 3 months and "thousands" of so called "Drilled but Uncompleted Wells" (DUC's), U.S. production did drop by a relatively large 38,000 boe/d last week and did drop in the prior week also. For perspective, 38,000 boe/d is 1.976 million boe/d on an annualized basis.

 

So the meaning of current numbers is very clear: higher oil prices (your guess $60?, $70?) are needed to incentivize shale drilling to offset a large decline rate and there is no amount of increased productivity or mysterious easy low cost inventory (DUC's) that will stabilize production at current level.

 

With slightly higher prices, maybe that more DUC's will be completed and offset the decline rate. However, with the carnage that has played for so many service companies, the number of readily available crews and equipment did decline over the past 2 years so a "rush" to complete will lead to higher rates and costs.

 

We also forget about the other half of U.S. production which has its own issues despite a lower decline rate (3 to 5% a year). These guys seem in no position or having any sense of urgency to add to production at current prices.

 

Cardboard

 

[DooDiligence]

Speaking anecdotally for the other half of US production (I run an OSV for a marine transport company on contract for Chevron.)

 

We've been working a drillship in Walker Ridge & last hitch we stayed at the dock the entire 28 days (the 1st time I can remember this happening...)

 

There are literally 1,000's of tons of capital sitting idle (and that's just in Fourchon.)

 

This doesn't necessarily add anything useful to your discussion (I probably shoulda posted it in the HOS thread as a cautionary tale...)

[SharperDingaan]

A pretty big draw (-7.6 mln barrels) from the API again! Let us see if the EIA confirms. If these draws continue,  I can easily see WTI hitting 60 by the end of the year.

 

http://www.investorvillage.com/groups.asp?mb=19168&mn=52903&pt=msg&mid=16427219

 

It's hard to find any weakness in this EIA report

Normally in a shoulder season you can expect some crude builds with little distillate builds offset by some draws in gasoline. Not in this report.

 

Crude stocks fell again - by 3.0mm bls

Gasoline stocks were almost flat - rising by a mere 0.2mm bls

Distillate stocks fell by a large 2.4mm bls

Total in all 3 products - 5.2mm bls draws, or 0.74mm bpd.

 

Imports fell again - by 125K bpd to 7.7mm bpd and as expected running below 8.0-8.3mm bpd during summer. This is the very bullish figure suggesting that OPEC and other producers are at peak production and cannot add more.

 

Refinery utilization at 88.3%- finally showed reduced demand due to the maintenance in full force. This rate is close to a bottom demand. It may drop to 86% similar to previous years for a single week, but may remain at 88% as the season has started earlier this year. Regardless a couple of more weeks at 86-88% should follow by the jump back to 90% in 3 weeks.

 

Crude builds was certainly impacted by adjustments that dropped by relatively large 370K bpd, from +240bpd to -130K bpd. However the important figure for future expectations is the absolute adjustment that was 130K bpd only - very small.

 

Crude stocks broke down the psychological level of 500mm bls for the 1st time this year, down by 40mm bls from the peak, and on its way to achieve the last year level of 460mm later this year, and 5-year average of 400mm bps some time next year.

 

Gasoline stocks are at 227mm bls that is just 7mm bls above 5-year average, or 3.5%. Accounting for 3-4% demand growth in US the gas stocks are basically at average levels.

 

Distillate stocks are at 160.7mm bls, 11.5mm bls or 7.8% above last year. However higher inventories are needed for expected colder winter this year.

 

There is no glut in gas and distillate stocks. Crude stocks are falling rapidly and are on its way to remove 40-100mm bls excesses in the next 3-12 months.

US production: continued falling by 30K bpd including 38K in the lower 48.

 

Demand in all 3 categories continued to be very strong. Unlike last year when demand was weaker after the Labor Day weekend, this year demand did not show any weakness so far:

Gas: +511K bpd

Distillate: +103K bpd

Jet fuel: +202K bpd

 

Bottom line:

The report is very very bullish. It is hard to find any bearish position.

WTI should break out $50 in a very near future and keep going to $60 no matter what some analysts say.

 

It's a lot more bullish that everyone thinks...

 

All these INCREASING draws indicate that US demand is routinely exceeding US supply, INCLUDING off shore tanker inventory landing on US facilities. Tanker inventory is mobile; less of it landing can only be because there is EITHER a lot less of it left, or the remainder is starting to be held back for higher prices. Bullish.

 

Put a well back on-line and you get a temporary production boost, followed by accelerated decline. It would appear that the high decline rate of shale production is now materially overwhelming new production from drilling and DUC tie-up. It's also why the land rig-count has been quietly rising over the last few months. Bullish.

 

We know the off-shore drill fleet is in deep dung. Few realize that a good number of the existing off shore platforms are barely covering their marginal cash cost. A major can only subsidize temporary losses, if they are profitable elsewhere - and we know from their income statements that the operating leverage on these fixed cost investments has been working against them. Bullish. 

 

We haven't seen the bankruptcies, we've seen work-outs instead - and cash flow from depreciation paying down debt. The 2nd stage of this is consolidation to produce cash flow savings to fund new drilling. To most folks, it is highly likely that this M&A activity will dominate when most believe that WTI will settle in the $50-60 per barrel range, or higher. Bullish.

 

We know from the rating and audit firms that if you pay a high enough fee/consulting rate, you can make a pig fly. Post Enron, and the 2006 financial crisis, rating agencies and audit firms now have rules mitigating this. No such rules apply to the media, and we know their 'business model' doesn't work - leaving them highly exposed to this kind of manipulation. Opportunity.

 

For now the US election is overshadowing everything, but one has to think that if Trump doesn't win (& his controversy is no longer selling papers), the media will need a new source. The 'oil story' would seem to be pretty high on the list. Bullish.

 

SD   

 

       

 

 

 

[sculpin]

Speaking anecdotally for the other half of US production (I run an OSV for a marine transport company on contract for Chevron.)

 

We've been working a drillship in Walker Ridge & last hitch we stayed at the dock the entire 28 days (the 1st time I can remember this happening...)

 

There are literally 1,000's of tons of capital sitting idle (and that's just in Fourchon.)

 

This doesn't necessarily add anything useful to your discussion (I probably shoulda posted it in the HOS thread as a cautionary tale...)

 

It's not just US offshore that has been hit hard. It's a worldwide issue that is essentially being ignored by the intense focus on US shale. The last 2 years of cap ex reduction in offshore & overall curtailment of exploration & development outside of the US will see serious supply implications over the next several years.

 

North Sea Oil and Gas Drilling Activity Plunges to All-Time Low

 

October 7, 2016

 

http://www.bloomberg.com/news/articles/2016-10-07/north-sea-oil-and-gas-drilling-activity-plunges-to-all-time-low

 

The number of rigs drilling for oil and gas in the North Sea, home of the Brent crude benchmark, plunged in September to the lowest in nearly 35 years as companies cut spending to weather low prices.

[DooDiligence]

I ran an anchor handling tug in Brasil from 2011 to 2015 & was fortunate to have made the move back to the GOM before things got really bad (plunging oil & lava jato...)

 

Highlight from an article outlining recent events in Brasilian oil:

 

"In a significant change to Brazil’s offshore oil industry regulations, companies other than Petrobras can now operate blocks in the largest deep-water deposits discovered this century. Until now the heavily indebted state-controlled oil producer was legally obliged to operate all the pre-salt fields with a 30 percent minimum stake."

 

Link to original article:

 

http://rigspot.net/2016/10/07/brazil-opens-offshore-oil-fields-to-companies-other-than-petrobras/

 

I would think they'd have a difficult time attracting capital although China seemed willing to finance Petrobras which may not provide the Chinese with as much value as they expected given this recent legislation.

 

Argentina has a lot of these type of formations in the Vaca Muerta & it seems to me that Brasil would be deemed the least untrustworthy but I may simply be blinded by Caipirinhas.

 

Maybe someone smarter than me can interpret whether this means I'll have a chance of going back to work in Brasil some time over the next few years (it beat the heck out of West Africa & the ME...)

 

As to tanker storage; there's an anchorage SW of the Loop facility that I pass through on the way to Walker Ridge which has been full up for quite some time.

 

I'll make a note of vessel names & drafts next time I pass & will keep a journal to see if they're coming & going (provided I actually get to haul any more cargo that is...)

 

(Disclaimer on the above: any fuzzy conclusions I've drawn are obviously those of an amateur & I make them here knowing that you guys are an extremely civil & diplomatic bunch who won't send me crying to my room. I wanna learn more so hook me up!)

[SharperDingaan]

Speaking anecdotally for the other half of US production (I run an OSV for a marine transport company on contract for Chevron.)

 

We've been working a drillship in Walker Ridge & last hitch we stayed at the dock the entire 28 days (the 1st time I can remember this happening...)

 

There are literally 1,000's of tons of capital sitting idle (and that's just in Fourchon.)

 

This doesn't necessarily add anything useful to your discussion (I probably shoulda posted it in the HOS thread as a cautionary tale...)

 

It's not just US offshore that has been hit hard. It's a worldwide issue that is essentially being ignored by the intense focus on US shale. The last 2 years of cap ex reduction in offshore & overall curtailment of exploration & development outside of the US will see serious supply implications over the next several years.

 

North Sea Oil and Gas Drilling Activity Plunges to All-Time Low

 

October 7, 2016

 

http://www.bloomberg.com/news/articles/2016-10-07/north-sea-oil-and-gas-drilling-activity-plunges-to-all-time-low

 

The number of rigs drilling for oil and gas in the North Sea, home of the Brent crude benchmark, plunged in September to the lowest in nearly 35 years as companies cut spending to weather low prices.

 

There is  bright side to this https://www.abdn.ac.uk/old-business/documents/Aberdeen_Housing_Market_Report_2015Q4.pdf

Aberdeen housing prices have started to come down; a year from now we may be seeing some nice bargains. The pound has also dropped like a brick - further reducing the cost of these things. And what is happening in Aberdeen .... is also happening everywhere else that is reliant upon the off shore industry.

 

SD 

 

 

[sculpin]

Seems like everything falling in place nicely....

 

Robry825: Oil to $90 by February 2017 (Coolreit)

Forecast is for sharply rising oil prices.

 

The "Oil to $90 by February 2017" was (as first mentioned last spring)

a best-case scenario that I saw as legitimizing itself at that time,

predicated mostly on shipping activities.

 

The $90 was (in my mind) a milepost (not a destination), applicable

should all things come together just right to tighten oil markets

in the summer/fall.

 

An analogy would be to a cruise ship leaving a dock, but with a rope

still tied to a spindle on the dock. As the ship pulls away, the spindle

would not know the ship had left, because it feels the ships rope tied

around it. As the ship pulls further and further out the spindle does

not notice, until "SNAP-P-P-P-P".

 

In oil, that is what a bull market is. A glut forms until shell-storage

is full, then refiners (eager to store cheap oil) book tankers to hoard.

The tanker storage (Seaborn Storage) is hidden, out of site of the

markets, and if they want to get really nasty, they can take on ballast

to confuse tanker-watchers.

 

When gluts end, no-one really knows except the refiners (who have title

to the oil and therefore know exactly) and as oil goes into shortfall

that shortfall is hidden until refiners (one by one) empty their last

tankers and (in the wink of an eye) have to turn to their shell storage.

 

As to the $90 scenario, so far so good. Chartering rates loosened,

refiners started hedging with abandon, we got 5 crude draws in a row,

then bang... last week (with refiners operating at 85% of capacity) total

stocks fell. Take away LNG's, propane, ethanol, etc, and total stocks

are down hard.

 

Come about the middle of November refineries come back up it is going to

be an absolute mess.

 

But for crude oil in the weekly eia's, don't just look at crude oil alone.

The eia reports are a shell game, and you don't know which shell that

little black ball is under. It could be under the crude oil shell, or it

could be under the distillate shell, gasoline shell, unfinished products

shell... you have to look at the oil content in each product and add them

together.

 

You can back into this by taking total commercial and backing out LNG's, etc,

or you can set up a spreadsheet to do the math for a more precise number.

 

But all-in-all, the "Oil to $90 by February 2017" is still in play.

 

http://www.investorvillage.com/groups.asp?mb=19168&mn=54485&pt=msg&mid=16461112

 

[tombgrt]

Who is this Robry825?

[DooDiligence]

Back at work & we're on a new job.

 

Working in Green Canyon 640 with 2 Transocean drill ships (Deepwater Inspiration & Asgard) & a well intervention semi (Q4000) owned by Helix (formerly CalDive.)

 

Hooooray for cargo ops!

 

(Didn't go far enough to pass through tanker anchorage...)

[JayGatsby]

Any suggested positions that people are following to capitalize on a possible upswing? I have small positions in a few service providers:

Civeo, Gulfmark Offshore, Forbes Energy bonds (now in workout), as well as a small position in Macro Enterprises. I'd like to be in some E&Ps, but as a whole thy haven't seen the decline that the service providers have. Thanks

[sarganaga]

I like  some of the royalty trusts.

 

Sabine Royalty Trust (SBR) no debt, no employees, all top line royalties, some Permian exposure.

 

Dorchester Minerals (DMLP) no debt, mostly top line royalties, some bottom line royalties, some Permian exposure.

 

Crosstimbers Royalty Trust (CRT)  no debt, no employees, mostly top line royalties, some bottom line royalties, some Permian exposure

 

I own all three of these with substantially more invested in SBR

[Cardboard]

From the mainstream media 3 to 4 months later:

 

http://www.cnbc.com/2016/10/18/in-good-sign-for-market-floating-oil-storage-has-plummeted.html

 

Cardboard

[DooDiligence]

From the mainstream media 3 to 4 months later:

 

http://www.cnbc.com/2016/10/18/in-good-sign-for-market-floating-oil-storage-has-plummeted.html

 

Cardboard

 

I just passes through the Loop anchorage on my way back from the Tahiti field.

 

There were 2 tankers anchored on the way out & the same 2 on the way in (a day & a half later) both drawing 15 meters.

 

6 months ago there'd be at least a dozen...

[Joe689]

EIA confirms again, and then some.  Inventories shouldn't be dropping at this seasonal time but they are .  Maybe a little hurricane related?

[Cardboard]

Possibly with net imports down 912,000 barrels/day or 6.384 million barrels in the last week. However, inventories still did decline by 5.2 million barrels despite refineries consuming 452,000 fewer barrels per day than the most recent 4 week average. That represents 3.164 million barrels in the last week. And exports were not down that significantly or less than 10%. They use the same ports and key areas such as the Gulf and Northeast were not affected by the hurricane.

 

So imported much less and consumed less possibly due to the hurricane? If so, with the talks of Libya and Nigeria apparently coming back on line, the oceans must be filled with full tankers and with it higher tanker daily rates. That is not really what I am seeing looking at the stock charts of FRO and TNK.

 

I would also imagine that refineries will get back to the 16 million barrels/day of consumption in a few weeks with the end of the maintenance/turnaround season leading to 4.4 million barrels/week additional of consumption.

 

With OPEC having not cut yet. Just discussions leading up to the November meeting. It seems clear looking at the last 6 to 8 weeks of U.S. data that we are into a deficit already on this side of the ocean. Not sure about Europe and elsewhere but, with the law of supply and demand, you would think that if the U.S. inventories are being depleted that it should be a similar case elsewhere.

 

Cardboard